Residential Lease Agreement Liquidated Damages in California

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Written by Travis C Logue

Published: 22 March 2013

Logue Law customarily represents landlords; however, occasionally we represent tenants. Recently, we assisted one of our clients (who is a tenant) achieve a $12,000.00 victory in small claims court (the maximum amount) against an unscrupulous landlord (“Mr. Landlord”), who completely ignored our reasonable demand letters and thought (or hoped) the problem would just go away – a severe and expensive miscalculation.

Our client was renting a high-end home and was forced to leave before the expiration of the lease term. They collaborated with Mr. Landlord on a move-out date and, thankfully, the home was immediately re-rented which, in turn, made Mr. Landlord’s damages nominal. However, Mr. Landlord still deducted $6,000.00 from our client’s $20,000.00 security deposit based on a certain lease provision:

Should tenant opt to vacate and not exercise the third year option, tenants must pay a fee of $6,000.00 prior to vacating premises. Should landlord opt to not renew the third year, tenants do not owe the $6,000.00 fee.

If the above provision seems unfair and oppressive to you, you’re right -it’s illegal, unenforceable, and, potentially, evidence of bad faith. It’s a liquidated damages provision and in California is void as against a residential tenant (and the tenant’s dependants). California Civil Code § 1671(d); see Orozco v. Casimiro (2004) 121 CA4th Supp. 7, 12; see also Utility Consumers’ Action Network, Inc. v. AT&T Broadband of So. Calif. Inc. (2006) 135 CA4th 1023, 1028-1029. As courts have opined, it is demonstrative of a landlord who exploits its superior resources and bargaining position and takes unjust advantage of a tenant.

Moreover, according to California Civil Code § 1950.5(m), no lease or rental agreement may contain any provision characterizing any security as “nonrefundable”. In addition, to make matters worse for Mr. Landlord, Civil Code § 1950.5(l) states that, “The bad faith claim or retention by a landlord…of the security or any portion thereof…may subject the landlord…to statutory damages up to twice the amount of the security, in addition to actual damages.”

Are you surprised? You shouldn’t be. After all, California is a state that aggressively protects tenants’ rights, which is why landlords must tread carefully and should obtain expert advice before entering into a lease or when dealing with tenant disputes. If the landlord in this case would have sought our counsel before entering into the lease, he could have saved himself more than a ten thousand dollar bill. Let’s hope Mr. Landlord is a quick study. If you’re a landlord, stop using forms off the internet or drafting provisions that sound good – let us help you employ prophylactic measures. It will save you money in the long run – just ask Mr. Landlord.

Rogers, Sheffield & Campbell frequently counsels clients involved in landlord tenant disputes including evictions. Contact our Real Estate Law team at (805) 963-4700 or use the secure form on this page.

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Rogers, Sheffield & Campbell, LLP primarily serves individuals, families and businesses up and down California's Central Coast and North Los Angeles County, including many Santa Barbara, San Luis Obispo, and Ventura County communities.